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MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

This analysis should be read in conjunction with the Consolidated Financial Statements and the notes thereto.

OVERVIEW

Graham Holdings Company (the Company) is a diversified education and media company whose operations include educational services; television broadcasting; online, print and local TV news; social-media advertising services; home health and hospice care; and manufacturing. Education is the largest business, and through its subsidiary Kaplan, Inc., the Company provides extensive worldwide education services for individuals, schools and businesses. The Company’s second largest business is television broadcasting. Since November 2012, the Company has completed several acquisitions in home health services and manufacturing. The Company’s business units are diverse and subject to different trends and risks.

The Company’s education division is the largest operating division of the Company, accounting for 59% of the Company’s consolidated revenues in 2017. The Company has devoted significant resources and attention to this division for many years, given its geographic and product diversity; the investment opportunities and growth prospects during this time; and challenges related to government regulation. In recent years, Kaplan has formulated and implemented restructuring plans at most of its businesses, resulting in significant costs in order to establish lower cost levels in future periods. Kaplan is organized into the following three operating segments: Kaplan Higher Education (KHE), Kaplan Test Preparation (KTP) and Kaplan International.

KHE represents 36% of total Kaplan revenues in 2017. KHE’s revenue declined in 2017, largely due to declines in average enrollments at Kaplan University. Operating income at KHE declined in 2017 due primarily to lower enrollment at Kaplan University.

KTP revenues declined in 2017 due to lower unit prices, despite higher enrollments. Operating results improved due primarily to operating cost efficiencies. Due to continued operating losses, KTP closed Dev Bootcamp in the second half of 2017.

Kaplan International reported revenue increases for 2017 due to growth in Pathways enrollments. Kaplan International operating results improved in 2017 due largely to improved Pathways program results, partially offset by a decline in Singapore.

Kaplan made two acquisitions in 2017; three acquisitions in 2016, including Mander Portman Woodward, a leading provider of high-quality bespoke education to the United Kingdom (U.K.) and international students in London, Cambridge and Birmingham; and one acquisition in 2015.

The Company’s television broadcasting division reported higher revenues in 2017, due to the acquisition of two new stations in January 2017. Excluding these stations, revenue and operating income decreased in 2017 as 2016 included significant political and summer Olympics-related advertising revenue. Additionally, 2017 had significantly higher network fees due to the Company’s NBC affiliates in Houston and Detroit operating under a new contract with NBC. In recent years, the television broadcasting division has consistently generated significantly higher operating income amounts and operating income margins than the education division and other businesses.

With the recent healthcare and manufacturing acquisitions and growth at SocialCode, the Company has invested in new lines of business from late 2012 through 2017.

The Company generates a significant amount of cash from its businesses that is used to support its operations, pay down debt and fund capital expenditures, share repurchases, dividends, acquisitions and other investments.